Why US economy is flashing conflicting signals

Businesses appear to be less confident than consumers. A survey of chief executives of large U.S. companies has found their outlook to be at its most pessimistic level since the fall of 2009 — just after the recession officially ended. Orders for long-lasting factory goods plummeted in August. In part, that reflects Europe’s financial and economic crises, which have reduced demand for U.S. exports. Six European countries are in recession. More are expected to follow.

The Good News: A plunge in orders for commercial aircraft caused most of the drop in demand for factory goods. That category of orders fluctuates from month to month. It will likely rebound. In the meantime, orders that reflect business investment plans are up.

The Bad News: Business spending on equipment and software has been a big source of economic growth in recent years. Orders for such goods have dropped sharply in the past three months, threatening to further slow U.S. growth.

Looking Ahead: Many corporate executives lack confidence in part because of fears that the U.S. economy will fall off a “fiscal cliff” early next year. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal. Those changes could throw the economy into recession. But business spending and hiring could pick up if the budget issues are resolved.

CONSUMER SPENDING

Americans spent more in August. But that was mainly because they had to pay more for gas and some other items. Adjusted for inflation, consumer spending barely rose in August. That’s been true for most of this year.

The Good News: Americans were willing to spend more, even if much of it went in the gas tank. Consumers were even willing to save less in order to spend more. That’s another sign of confidence.

The Bad News: Income failed to keep up with inflation, which is why consumers had to dip into savings. That isn’t sustainable for very long. The national average retail price for gas is $3.79 a gallon, nearly 50 cents higher than in early July and a record for late September. If gas prices stay high, Americans would have less to spend on other goods, from cars and furniture to electronics and vacations, that fuel economic growth.

Looking Ahead: Spending will likely grow sluggishly without bigger increases in workers’ pay and perhaps a moderation in gas prices.

JOBS

The number of people applying for unemployment benefits fell sharply in the week ending Sept. 22. That suggests that the weak job market could strengthen. Employers added just 96,000 jobs in August — barely enough to keep up with the growth of the working-age population. The unemployment rate did fall to 8.1 percent from 8.3 percent. But that was because many people gave up looking for work, so they were no longer counted as unemployed.

The Good News: Weekly applications for unemployment benefits track layoffs. So the drop indicates that companies aren’t laying off many people.

The Bad News: Falling layoffs aren’t translating into healthy job growth. The pace of layoffs in July was the lowest in a decade — even lower than when the economy was booming. Yet employers are hiring at a subpar pace.

Looking Ahead: The September jobs report will come out Friday. Economists think the economy will show a modest gain of about 100,000 jobs. Given employers’ anxiety about the U.S. fiscal cliff and Europe’s economic crisis, few expect a significant pickup in hiring soon.